ContextAddress by the Governor to Bank of Korea staff in Seoul for the central bank's 76th anniversary.
Why it mattersThe Bank of Korea's anniversary speech, a yearly policy marker, announces steps to open the won market to foreign investors.
- Inflation will stay above target for a long time after supply shocks.
- Demand-side price pressures are strengthening.
- Korea's currency market is not open enough to foreign investors.
- Work with the government on price stabilisation.
- Open the foreign exchange market 24 hours and create an offshore won settlement system.
- Use strong public and corporate finances to invest in future growth.
Read the speech summary
1. Strong growth, rising inflation
Marking the central bank's 76th year, the Governor of Korea's central bank, in office for two months, thanked his predecessors and staff and told them that AI-driven chip exports lifted first-quarter growth to 1.8% on the quarter and nominal growth to 10.5%, with real incomes rising near double digits. Growth should stay solid as incomes and investment support domestic demand, though it relies heavily on IT. Inflation reached about 3% in May and core inflation the mid-2% range, while living costs rise faster than the headline index, risking higher household expectations; inflation should stay above target for some time.
2. Financial risks and the won
Seoul home prices, deposits and rents are climbing, borrowing to buy shares has jumped and household loans grew sharply in May. The won stays around 1 500 per dollar as foreigners sell Korean shares, although the current account surplus may support it.
3. Policy direction
With little trade-off between objectives, the bank should focus on prices and lift its policy rate without waiting until it is late, which also protects poorer households; fiscal policy is better placed to help indebted borrowers. Longer-term tasks include household debt, reducing the concentration in Seoul, internationalising the won with 24-hour trading and offshore settlement, using strong public and corporate finances to invest, and studying demographic effects on growth and the neutral rate. He promised open debate and better internal management, urging preparation while times are good, in the spirit of repairing the roof while the sun shines. He added that the current boom owes much to a favourable external environment and should not breed complacency, and that the best decisions come from departments sharing information and working together.